NEW YORK (Reuters) - A Deutsche Bank AG mortgage unit has agreed to pay $202.3 million to settle one of the biggest U.S. government civil fraud lawsuits over reckless mortgage lending practices.

The bank's MortgageIT unit admitted it had lied to the U.S. Department of Housing and Urban Development (HUD) that loans it issued were eligible for federal mortgage insurance when they were not, the U.S. attorney's office in Manhattan said on Thursday. It said MortgageIT "repeatedly submitted certifications that were knowingly or recklessly false."

Deutsche Bank and MortgageIT did not conform to federal regulations and as a consequence, HUD incurred losses when about a third of the loans defaulted, Manhattan U.S. Attorney Preet Bharara said. He said the damages to be paid by the bank would help compensate HUD.

The case is one of several civil fraud lawsuits that are part of a crackdown by the Department of Justice against lenders it believes contributed to the housing crisis by originating risky home loans that should not have been made, insured or sold.

Bharara said that between 1999 and 2009, Deutsche Bank and MortgageIT treated the federal insurance, obtained through the Federal Housing Administration (FHA), "as free government money to backstop lending practices that did not follow the rules."

The rules include a quality control program under which the lender is required to review loans that default within the first six payments and report them. By the end of 2007, MortgageIT was not reviewing those loans. The FHA paid more than $92 million in FHA insurance claims in the 10-year period for loans that defaulted within the first six payments.

The $202.3 million resolves damages and penalties under the False Claims Act, which since 1863 has protected the federal government from fraudulent bills. The settlement was approved Thursday by a federal judge, according to documents filed in U.S. District Court in New York.

The Department of Justice sued in May last year, describing in its lawsuit a decade of misconduct regarding MortgageIT's participation in the FHA insurance program. The complaint said the quality of the 39,000 mortgages that MortgageIT approved for FHA insurance was so poor that 12,500 went into default.

Deutsche Bank said it welcomed the settlement. A spokeswoman, Renee Calabro, said the bank had "already fully reserved" for the accord and that it "marks a significant step in resolving our mortgage-related exposures."

According to the settlement, Deutsche Bank admitted and accepted responsibility for MortgageIT, which became a wholly owned indirect subsidiary of DB Structured Products Inc and Deutsche Bank AG in January 2007.

In February, Citigroup Inc agreed to pay $158.3 million to settle U.S. civil claims over similar allegations it defrauded the government into insuring thousands of risky home loans made by its CitiMortgage unit.

The Manhattan U.S. Attorney's civil frauds unit has sued four major lenders in the past year, accusing them of reckless residential mortgage practices. Besides the Citigroup and Deutsche bank settlements, Flagstar Bank FSB agreed to pay $132.8 million in February. A case against Allied Home Mortgage Corp and two of its executives is pending.

The case is USA v Deutsche Bank AG et al in the U.S. District Court for the Southern District of New York, No. 11-02976